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The impact of two-way global value chains participation on China’s industry income gap

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  • Liu, Xiaoqian
  • Li, Xingwang
  • Fang, Ruonan
  • Zhao, Xiaoming

Abstract

China’s economy is characterized: by a dual transformation of rising GVC integration and persistent income inequality. How this integration affects inequality is unclear. This study investigates how China’s two-way participation in GVCs has shaped its industrial labor income gap. Based on the sequential production “North-south” trade model, this study empirically examines the impact of global value chains (GVCs) participation on China’s labor income gap using the semi-parametric trend panel model. The findings reveal a declining trend in both forward-linked and backward-linked GVCs participation in Chinese industries, with significant heterogeneity across sectors. Furthermore, the embedding of global value chains and the current unbiased technological advancement of reverse technology spillovers have a significant role in alleviating the income gap of heterogeneous skilled workers in China, and this effect shows a trend of strengthening over time. Moreover, both the type of GVCs linkage and industry characteristics shape the distributional outcome: deeper GVCs integration promotes greater income equality, and the effect is stronger in services than in manufacturing—and stronger in producer-driven than in buyer-driven manufacturing. Finally, a higher share of state-owned enterprises weakens the equalizing effect of GVCs participation.

Suggested Citation

  • Liu, Xiaoqian & Li, Xingwang & Fang, Ruonan & Zhao, Xiaoming, 2026. "The impact of two-way global value chains participation on China’s industry income gap," Finance Research Letters, Elsevier, vol. 96(C).
    • Handle: RePEc:eee:finlet:v:96:y:2026:i:c:s1544612326003223
    DOI: 10.1016/j.frl.2026.109792
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